One subprime credit card company learned a tough lesson at the hands of the Consumer Financial Protection Bureau (CFPB) recently. The CFPB has officially ordered the subprime credit card company, one Continental Finance Company LLC based out of Delaware, to refund nearly $2.7 million in illegally filed credit card fees. The CFPB found that the company was issuing “free harvester” subprime credit cards that did not reveal the truth about fees and winded up making consumers responsible for illegal charges. The company was also ordered to pay a $250,000 civil penalty fee.
CFPB Director, Richard Cordray had this to say about this turn of events, “Continental Finance misled consumers and charged them illegal fees. These excessive fees are especially harmful because the cards were targeted to consumers with subprime credit who are often economically vulnerable. We will act to protect people who are wronged in this market.”
A full copy of the order from the CFPB can be found at the following link: http://www.consumerfinance.gov/f/201502_cfpb_consent-order_continental-finance.pdf
Continental Finance Company, LLC markets credit cards that are targeted at customers with low credit scores. Continental cards usually offered customers extremely low credit limits and forced people to pay high fees upfront. These types of credit cards are often called “free harvester credit cards.” Nearly all free harvester cards are targeted at people with credit problems, people who are economically vulnerable and folks who have limited access to options other than these types of credit cards because of their troubled credit histories. The company reportedly does business with credit unions and banks to issue these credit cards.
Back in 2009, Congress passed CARD (the Credit Card Accountability, Responsibility and Disclosure act) to provide improved consumer protection against unfair credit card billing policies and procedures. This law included a provision for free harvester cards to help consumers with additional protections from predatory credit cards with high fees that must be paid up front. As an example of how these cards work, someone might get a credit card with a $350 limit and have to pay in excess of $75 in fees during the first year of opening the account.
Continental offered these credit cards – the Matrix Card, the Cerulean Card and the Verve Card. The people who signed up for these credit cards typically got $300 limits, but had to pay up front fees of $75, which made these cards immediately meet the 25 percent fee limit that is spelled out in the CARD Act. Continental then went on to charge some customers additional fees over the course of the next 12 months. The additional fees pushed the accounts to exceed the fee caps placed on these types of subprime credit cards.
The charges against Continental Cards
The CFPB reported the following violations:
Continental intentionally misled customers about the credit cards. The marketing materials used indicated that consumers would only have to pay monthly fees if they chose to use paper billing.
Continental charged illegal credit card fees. The paper statement fees were in direct violation of a ban on credit card companies requiring fees of more than 25 percent of the total credit limit during the first year of account activation.
Account insurance was misrepresented. Continental provided some cardholder agreements that security deposits that were provided by consumers from certain cards would be insured by the FDIC. This is not true, as for some time many of the funds were not insured by the FDIC.
Some creditors get away with these kinds of misdeeds for years. These days, however, there is a higher level of scrutiny and some lenders that engage in shady practices are paying very high penalties as a result. Continental seems to have found this out the hard way.
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